Japanese economy surprisingly gaining momentum in Q1 2016

Japanese economy surprisingly gaining momentum in Q1 2016 after GDP grew by 1.7% yoy, which was high above the market expectations. Compared with the previous period, the Japanese economy grew by 0.4%. The data for the last quarter of last year were revised down to -1.7%. The results of economic growth are coming months after weak data, including contraction in GDP in two of the previous three quarters. This has increased expectations that Prime Minister Shinzo Abe will introduce more fiscal stimulus, and that will delay the lifting of VAT, which was planned for April 2017. The strong data, however, may complicate those decisions. Similar tax increases in 2014 were blamed for the subsequent contraction of the economy, but Abe said there will be an increase in VAT, unless they happen big economic shock comparable to the global financial crisis.

According to the economics the weakening of the economy in the second quarter, due to the slowdown in China, a stronger yen and earthquakes in southern Japan last month. However, the results for the first quarter increased chance of VAT be increased, even if the growth is not as strong as it looks.

The Japanese Economy Minister, Nobuteru Ishihara, stated that private consumption is the key to better growth in January-March. According to him, the risks include uncertainty of developing economies, volatility in financial markets and the effects of earthquakes. “The gradual recovery is expected to continue amid improvements in employment and wages”, he said.

Despite the good data outlook, the Japanese economy remains uncertain. The costs of companies remained weak, as business investment fell by 1.4% in the first quarter.

The household spending rose by 0.5% quarter on quarter amid forecasts for growth of 0.3%, which account for about 60% of GDP. The government consumption growing by 0.7% compared to the previous quarter, while public fixed investment increased 0.3%.

The reason for optimism turns and foreign demand. Exports grow by 0.6% quarter on quarter, after the previous period reported a decline of 0.8%. The imports fell a second consecutive quarter.